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Sri Lanka tile firms hit by imports, gain from falling costs

EconomyNext – Tile manufacturers in Sri Lanka have been affected by a flood of imports after import duty was lowered but lower energy and interest expenses have reduced costs with exports also growing, a report said.

Both firms have gained from synergies coming from their takeover by rival Royal Ceramics Lanka (RCL) enabling some reduction in costs, Bartleet Religare Securities said in a report on their second quarter results.

"The local tile segment faced a set back from intense competition due to cheaper imports," it said.

"Local sales for both Lanka Floortiles and Lanka Walltiles (LWL) grew only marginally, affected by cheaper imports.

"However, we believe new product development, new dealerships and more franchise outlets would help Lanka Floortiles and LWL sustain market share going forward."

Both manufacturers were focusing on exports in which the stock broker said results appear promising.

Lanka Floortiles, which manufactures glazed ceramic floor tiles, saw local sales growing only slowly – at four percent – in the second quarter of the 2015 financial year from a year ago.

"The flood of cheaper imports has impacted local sales and will continue to be a threat in the forecast period," Bartleet Religare Securities said, adding that the company continues to increase its focus on exports.

"Cheaper imports secured a higher market share of 54 percent which was aided by a reduction in import tariff from 30 percent to 25 percent in the 2014 national budget," the report said.

But it noted the Lanka Floortiles managed to sustain its market position by increasing the franchise network, securing new dealerships, new product development and effective
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"The future focus however is on exports sales, for which Lanka Floortiles has already made inroads into Indian, Maldivian and the North American markets."

Lanka Walltiles was also hit by cheap imports but the stockbroker said it was positive on the manufacturer’s longer term export focus.

Its entry in to the Indian market has been promising, although results may ensue in the next financial year, the report said.

"The undisrupted supply of raw material, reduction in energy costs coupled with synergies with RCL would improve margins going forward."

But the stockbroker warned they were concerned about the impact of an "unavoidable wage increase" in the plantation sector of Lanka Walltiles.